2006 budget priorities made friends with the small business community

Businesses of all sizes will get a boost from the tax breaks outlined in the Conservative Party of Canada’s May 2 federal budget, but whether these tax savings improves the productivity of Canada’s small businesses is a yet-to-be-answered question. "With a little more cash because of these tax breaks, presumably would have more money for ICT investment," Brian Guthrie, director of innovation and knowledge management at the Conference Board of Canada, tells Network Letter. "Whether they choose to do so remains to be seen. Canadian business not only underinvest in ICT but in machine equipment generally, in process equipment, in training and also in R&D, so there are many places to invest under the innovation umbrella." When it comes to investing in information and communication technologies – one of 12 areas identified by the Conference Board as having huge opportunities in Canada – Guthrie says it’s more of a business and academic issue than a government issue. He adds adoption of ICT, and new business machinery of all types, should be driven by quantitative benefits as much as anything else. "If the CIO is asking the CFO for money for computers, give him some real live evidence and data to show that it’s going to mean better business performance," says Guthrie. "That said, we do see the federal government is conspicuous by its absence in a lot of these debates." To help make innovation-based commerce in Canada a priority, the Conference Board recently formed the Leaders’ Roundtable on Commercialization to identify and release a national strategy to implement over the next 10 years. As for right now, those in the small business community are lauding the fact that many of their needs were specifically addressed by the new government’s budget. "It exceeds our expectations and our expectations were pretty high," Garth Whyte, executive VP of the Canadian Federation of Independent Business (CFIB) tells Network Letter. "There was a cluster of announcements that were focused on small business, business growth, entrepreneurship, and they hit our top priorities." Tax reductions and initiatives directed at small business in the budget included: Increasing the amount of small business income eligible for the 12% tax rate from $300,000 to $400,000 as of January 1, 2007. Reducing the 12% tax rate applying to qualifying small business income to 11.5% in 2008 and 11% in 2009. A tax credit of up to $2,000 for employers who hire apprentices. A $1,000 grant for first- and second-year apprentices. Other initiatives were a $500 tax deduction on tool costs for trades people, the allowance for fishers to transfer fishing property to their children without tax liability, and excise duty reductions to small and medium sized vintners and brewers, all of which pleased the CFIB. However, Whyte does feel that allocating surplus funds to the Canada Pension Plan is "a mistake," saying that it’s in the interests of the CFIB members to put any surplus monies towards reducing the national debt. He added that he also would have liked to see more on the regulatory side, but hadn’t expected it. However, the government did address the CFIB’s desire to reduce the paperwork burden on small business. The budget stated: "Small business provides much of the dynamism and entrepreneurial drive in our economy. When small business people have time and resources to devote to their firms, more jobs are created and our economy prospers. It is the responsibility of government to ensure that regulations are designed efficiently, so that the goals of regulation are met at the least cost to our entrepreneurs." It went on to quote a CFIB statistic that the annual cost of business to comply with regulations is at least $33 billion, noting that options on reducing the burden are currently being studied by the Advisory Committee on Paperwork Burden Reduction, of which Whyte is co-chair. "They referenced that and so that’s setting the table for future priorities," he says. Getting recognition only first step, greater effort in the worksThe Conference Board’s Guthrie knows that just getting issues on the government’s agenda in the first place is a big step, which will be one challenge for the Roundtable on Commercialization. To that effect, Guthrie wasn’t expecting much from this budget in terms of aiding the roundtable’s goals. "It’s steps in the right direction, but in terms of specifics around innovation and commercialization it’s marginal," he says. "This government is clearly set on its five priorities, what we are concerned about is longer-term issues, particularly around productivity and competitiveness." In fact, the roundtable, which is made up of 50 industry leaders, university presidents and deputy ministers, has six goals of its own, including: identifying five to eight sectors, technologies or markets where Canada possesses world-class expertise; increasing private investment in workplace training by 50% and doubling the number of students graduating with work-specific skills; doubling private sector investment in R&D and innovation, and striving to become the top-ranked nation in the world for business investment in higher education; doubling the number of experienced international investors making deals in Canada and increasing venture capital deals to US levels; increasing the number of innovative small and medium-sized enterprises in Canada by 20%; and establishing a Centre for Innovation and Prosperity. On the R&D side, the budget called for an additional $100 million to various research and funding programs. It also included tax credits for the cost of students’ textbooks and the elimination of the current $3,000 limit on the amount of scholarship, bursary and fellowship income a post-secondary student can receive without paying federal income tax. Guthrie calls these initiatives a step in the right direction as well, saying that more skilled workers will always benefit the business community. He adds: "What business wants, if nothing else, out of the universities is more knowledgeable people who could work in their organizations." While the budget touched on some of what the roundtable is looking to accomplish, most of the targets in the Conference Board’s national strategy are for the next five to 10 years. At this point, Guthrie is looking to start moving the strategy forward. "Part one is trying to reach federal politicians more directly with regards to this strategy," he says, adding that ideally they’d like a face-to-face meeting with Prime Minister Stephen Harper. Not that Guthrie is siding with Bloc Québécois leader Gilles Duceppe’s claim that the next federal budget will be "the real budget," but he hopes the 2007 edition is more in line with the Conference Board’s agenda. "It’s a little bit of playing politics but I think there’s some reality to ," he says. "Hopefully over the next 12 months they’ll realize there are a few other imperatives in the country as well." While the Tory budget eventually was passed on May 10 given the minority status of the government, Whyte says there is pressure for small businesses to take advantage of the benefits while they are here. "At least some of the tax things once they’re announced are locked in so they’ll be fine," says Whyte. "Any little thing helps here, and so it’s a nice message to our members of the small business community that they are seen as really important to the economy, and they should be."

2006 budget priorities made friends with the small business community

News | 05/11/2006 4:00 am EDT

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